April 18, 2008

Nestlé Wants to Build Market Share in Premium Sweets

The WSJ reports that Nestlé SA plans to enter the premium-chocolate market to increase sales in its confectionery division, but it will need time and money, analysts say.

Citing annual growth rates of as much as 8% for high-end chocolate products -- twice the rate of the general chocolate market -- the Swiss food-and-beverage company says it wants to lift the share of sales from dark and other luxury chocolate products from the current 4% of its total of 108 billion Swiss francs ($108.2 billion).

This year, Nestlé inaugurated a luxury-chocolate research center in western Switzerland and entered a pact with Belgian specialty chocolatier Pierre Marcolini. Nestlé will receive creative input from Marcolini while helping its partner to expand.

"Dark chocolate is a still-accelerating trend. Even countries which have no dark-chocolate tradition are successfully introducing such products," Nestlé's head of chocolate operations, Petraea Heynike, said in an interview. She declined to give a sales target for Nestlé's effort.

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And premium chocolate products are typically more resilient when consumer spending in general slumps, analysts say.

But Nestlé's rivals, such as Switzerland's Chocoladefabriken Lindt & Sprüngli, recognized this trend long ago and already hold formidable positions in the premium-chocolate market.

Nestlé is No. 2 in the global 90 billion-franc chocolate market, with a market share of 13%, behind Mars Inc.'s 15%. But Nestlé has very limited offerings in the premium-chocolate market.

Its main chocolate product is the downmarket KitKat brand, which it bought from U.K. confectioner Rowntree 20 years ago. Nestlé's premium brands are small and localized: The company sells Cailler-branded chocolate in Switzerland and Perugina-branded chocolate in Italy, for example.

"Everyone wants to grow in the premium-chocolate segment, and everyone probably thinks it's much easier to do than it actually is," Lindt & Sprüngli Chief Executive Ernst Tanner said last month at the company's annual media conference. He added that such a move takes more than simply repackaging a known brand.

Some analysts expect Nestlé to focus on organic growth and perhaps start a global premium chocolate brand. Others say the company may be looking for a purchase. Nestlé's Ms. Heynike declined to elaborate on the company's potential next steps.

"So far there's no visible premium strategy," said James Amoroso, head of consulting firm Amoroso. "Nestlé would have to come up with a new premium concept for the mass market that is fundamentally different from Lindt, the benchmark for traditional Swiss premium chocolate, and Cadbury Schweppes PLC's Green & Black's, which has occupied the organic-chocolate segment," he said.

Smaller acquisitions are also a possibility, Zürcher Kantonalbank analyst Patrik Schwendimann said, adding that Swiss chocolate brand Toblerone, owned by Kraft Foods Inc., could be a good fit. There has been no sign Nestlé has made any move on the product. Kraft and Nestlé officials declined to comment.

Check out Nestle chocolate & candy.

From the WSJ

Read More in: Candy News | Nestle

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Posted by Bob Wallace at April 18, 2008 11:03 AM
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